Food and Beverage Law Update: October 2015

by Holland & Knight LLP
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Labor and Employment

Plaintiff Wage and Hour Lawsuits Continue to Climb

Wage and hour litigation has become what some call the new "workplace revolution." Data from the Federal Judicial Center indicates that federal wage and hour lawsuits jumped an estimated 432 percent in 20 years. NERA Economic Consulting reports that an increasing proportion of the settlement dollars are related to food and food services. Total wage and hour settlement payments were $445 million in 2013 and $400 million in 2014, for a total since 2007 of more than $3.6 billion. On average, companies paid $5.3 million to resolve a case in 2014 with a median settlement value of $2.4 million. The settlement value per plaintiff per class year has fallen from a peak of $1,475 in 2011 to $686 in 2014. The most common claims are for overtime violations. The most wage and hour litigation is occurring in California, Florida, New York and Texas. Companies should consider obtaining wage and hour legal risk analysis and recommendations if they have not yet sought them.

NLRB's "Joint Employer" Doctrine Liberalized

In Browning-Ferris Indus. of Cal., Inc. and FPR-II LLC and Sanitary Truck Drivers and Helpers Local 350, Case No. 32-RC-109684, 2015 WL 5047768 (NLRB Aug. 27, 2015), the NLRB, by a 3-2 party-line vote, expanded the "joint employer" doctrine in a fashion certain to impact franchisors in the restaurant industry and employers more broadly if the doctrine is adapted for use in connection with Title VII and related state law claims. This latter threat became manifest in Nardi v. ALG Worldwide Logistics and Transp. Leasing Contract, Inc., No. 13 C 8723, 2015 WL 5462101 (N.D. Ill. Sept. 16, 2015), as amended, 2015 WL 5772473 (N.D. Ill. Sept. 21, 2015).

Browning-Ferris Industries, a recycling company, used a temporary staffing agency called Leadpoint Business Services to provide workers. The temporary labor services agreement stated that Leadpoint was the sole employer of the personnel it supplied. A Teamsters local tried to organize the employees, but did not just want to negotiate with Leadpoint; it wanted Browning-Ferris to qualify as a joint employer. The National Labor Relations Board (NLRB or the Board) used the case to announce a new standard for joint employer liability, replacing the "direct and immediate" control standard. Under the new standard, the NLRB may find that two or more statutory employers are joint employers of the same statutory employees if they "share or codetermine those matters governing the essential terms and conditions of employment."

Under the new test, the Board's initial inquiry will be whether there is a common law employment relationship with the employees in question. If this common law employment relationship exists, the inquiry turns to whether the putative joint employer possesses sufficient control over the employees' essential terms and conditions of employment to permit meaningful collective bargaining. The NLRB will no longer require that a joint employer not only possess the authority to control employees' terms and conditions of employment, but also exercise that authority. Reserved authority to control terms and conditions of employment, even if not exercised, will now be relevant to the joint-employer inquiry. Nor will the Board require that, to be relevant to the joint employer inquiry, a statutory employer's control be exercised directly and immediately. Control exercised indirectly, such as through an intermediary, may establish joint-employer status.

Now, if employees at a franchised restaurant unionize, they may be entitled to negotiate not only with the franchisee of the individual restaurant but also with the franchisor. In addition, in Nardi v. ALG Worldwide Logistics and Transp. Leasing Contract, Inc., the defendant argued that the court should adopt the new NLRB test in connection with a sexual discrimination and retaliation claim. Plaintiff Giovanna Nardi worked for the defendant ALG Worldwide Logistics; ALG subcontracted its payroll and benefits administrative services to Transport Leasing/Contract, Inc. (TLC). TLC also provided ALG with human resources forms and an employee handbook bearing TLC's logo. Plaintiff failed to serve ALG, and TLC moved for summary judgment on the grounds that it was not Nardi's employer according to the new NLRB test. The court granted TLC's motion.

Class Action Litigation on the Rise

Class action litigation is on the rise in the food industry. The jurisdictions that still see the majority of federal class action filings are California, New York, Illinois and Florida. However, there has been a notable increase in such litigation in Washington, New Jersey and Ohio. The most common type of cases filed include wage and hour, employment, false and deceptive advertising, and antitrust claims. No size business is immune from suit: these claims are filed against large chain retailers and single "mom and pop" operations in both the food and beverage production and retail spaces as well as the restaurant industry.

EEOC Continues to Aggressively Pursue the Restaurant Industry

The U.S. Equal Employment Opportunity Commission (EEOC) is a plaintiff in several class actions against restaurants. The agency is convinced that restaurants are engaging in a pattern and practice of rejecting job applicants ages 40 or older from serving in the front of the house as, for example, hosts, servers and bartenders. The first lawsuit was filed in 2009, and one of the most recent was filed by the EEOC in the first quarter of 2015. In September 2011, the EEOC sued Texas Roadhouse and subsidiaries in Massachusetts seeking $500 million in damages, claiming that only 1.94 percent of defendants' front-of-the-house employees were 40 years old and over. The case is still pending.

Common allegations are that the restaurants are looking for "fresh employees"; cute, handsome or beautiful employees; or "bubbly" and vigorous people. The EEOC's theory is that these are all euphemisms for young employees. The agency treats the parent and subsidiaries as joint employers as a result of "centralized" hiring decisions. The EEOC claims that the proper statistical comparator to determine whether hiring disparities are discriminatory is U.S. Census Bureau data, whereas the companies typically claim it is their actual applicant flow. The EEOC has expansive subpoena power to investigate claims of discrimination.

Other Class Actions

Deceptive Advertising Claims

Class actions against food and beverage manufacturers for false or misleading advertising involving breach of warranty claims and alleged violations of various consumer protection laws are also common. Red Bull, Ghirardelli, Cargill (Truvia) and Flax USA (flax milk) have entered into some of the more recent related class settlements. The common theme is that the defendants allegedly misrepresented that their products were healthier than less expensive alternatives or "all natural" when in fact they contain synthetic ingredients or ingredients disclaimed on their labels. More recently, in the wake of the FDA's determination that partially hydrogenated oils are not "Generally Recognized as Safe," a number of class actions claim that the manufacturers' products still contain these additives. Backus, et al. v. General Mills, 3:15-cv-01964, N.D. Cal.; Guttmann, et. al. v. Nissin Foods (U.S.A.) Co., Inc., 3:15-cv-00567, N.D. Cal.

Antitrust Claims

There has also been increased activity in the antitrust arena. This summer, the three largest producers of packaged seafood canned tuna were sued in multiple California courts for allegedly conspiring to fix the prices of canned tuna and other products. Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods, LLC, Tri-Union Seafoods, LLC, and Starkist Co., 3:15-cv-01714-W-MDD, S.D. Ca. Copycat cases continue to roll in against these and other defendants in the prepared seafoods industry. See, e.g., Ruiz, et. al. v. Bumble Bee Foods, LLC, Starkist Co., Tri-Union Seafoods LLC and King Oscar, Inc., 3:15-cv-02379-CAB-KSC, S.D.Ca. Some of the more novel cases allege that certain retailers and producers of food products are selling products produced by slave labor. See, e.g., Dana, et al. v. The Hershey Co., et al, 3:15-cv-04453-JCS, N.D.Ca.

Regulation and Legislation

Menu Labeling Guidance Up for Comment

The U.S. Food and Drug Administration (FDA) has prepared two rules requiring that calorie information be listed on menus and menu boards in franchised restaurants, similar food establishments and vending machines. The FDA is accepting comments regarding this guidance.

Labeling Law Would Preempt State GMO Regulation

Food industry-backed H.R. 1599, the Safe and Accurate Food Labeling Act of 2015, would make the labeling of food products derived from genetically modified organisms (GMOs) voluntary for food companies, and it would block individual states or municipalities from requiring GMO labeling. The Coalition for Safe and Affordable Food is the primary supporter of the bill introduced by Rep. Mike Pompeo (R-Kan.).

Plastic Grocery Bags Now Banned in all of Hawaii

In July, Oahu became the last populated island in Hawaii to ban plastic bags at grocery checkouts, a change that was instituted at the county level. California will have a referendum in November on whether to require stores to charge for reusable bags. Expect an active legislative agenda in this area during the coming years.

More Courts Agree that Federal Tip Credit Regulations Are Invalid

In Oregon Rest. and Lodging Ass'n v. Solis, No. 3:12-cv-01261-MO, 2013 WL 2468298 (D. Or. 2013), the U.S. District Court for the District of Oregon declared invalid the Department of Labor's regulations, prohibiting employers from contracting with their tipped employees to include non-tipped employees in the tip pool. In 2011, the Labor Department issued regulations which provide that "valid mandatory tip pools ... can only include those employees who customarily and regularly receive tips." 29 C.F.R. §531.54. Since the District Court decision in Solis, several more cases have been decided consistent with it. See Brueningsen v. Resort Express, Inc., No. 2:12-cv-00843-DN, 2015 WL 339671 (D. Utah Jan. 26, 2015);Cesarz v. Wynn Las Vegas, LLC, No. 2:13-cv-00109-RCJ-CWH,2014 WL 117579 (D.Nev. Jan. 10, 2014); Mould v. NJG Food Serv., Inc., No. JKB-13-1305, 2014 WL 2768635 at *5 (D. Md. June 17, 2014); Stephenson v. All Resort Coach, Inc., No. 2:12-CV-1097 T.S., 2013 WL 4519781 (D. Utah Aug. 26, 2013); Trinidad v. Pret A. Manger (USA) Ltd., 2013 WL 3490815, at *8 (S.D.N.Y. July 11, 2013). 

In fact, the District of Oregon expanded its ruling in Solis by deciding that it makes no difference if managers participate in the tip pool. Rocksmore v. Hanson, No. 3:14-cv-01114-MO, 2015 WL 852938 (D. Or. Feb. 24, 2015). Solis, Cesarz and Stephenson are on appeal.

Franchising

In July 2015, two bills were introduced in Congress in furtherance of the Universal Franchisee Bill of Rights. TheFair Franchise Act of 2015 (H.R. 3196) prevents alleged misleading or false information in franchise disclosure documents, prohibits mandatory arbitration, allows franchisees to discuss openly their experiences with the brand and to participate in franchise associations without retaliation. There are also renewal, transfer and termination protection provisions. The Small Business Administration (SBA) Franchise Loan Transparency Act (H.R. 3195) requires any franchise business obtaining an SBA-guaranteed loan to receive the following from the franchisor in its Franchise Disclosure Document: Year 1 average unit revenues and failure rates for the previous five years, as well as average unit revenues for all franchised units. Supporters of the bill include the Coalition of Franchisee Associations. Opponents include the International Franchise Association.

ADA

Americans With Disabilities Act (ADA) Title III lawsuits continue to surge as compared to prior years. There was an estimated 9 percent increase in 2013, and a 63 percent increase in 2014. The states with the greatest incidence of the litigation include California, Florida, New York and Pennsylvania. The increase in litigation is attributable, in part, to several rulings in recent years upholding the standing of "testers" who visit businesses to test for ADA compliance. See, e.g., Colorado Cross Disability Coalition v. Abercrombie & Fitch Co., 765 F. 3d 1205, 1211 (10th Cir. 2014); Mielo v. Bob Evans Farms, Inc., No. 14-1036, 2015 WL 1299815 (W.D. Pa., Mar. 23, 2015); Gilkerson v. Chasewood Bank, 1 F. Supp. 3d 570, 583 (S.D. Tex. 2014). As an example, in Houston v. Marod Supermarkets, Inc., 733 F. 3d 1323 (11th Cir. 2013), the court approved of the plaintiff's standing notwithstanding the defendant's argument that the plaintiff was merely a serial litigant who filed 271 ADA lawsuits in Florida alone, using boilerplate pleadings such as an affidavit that mistakenly referred to the supermarket as a "motel." Order on Motion to Dismiss, Case No. 12-cv-22892-UU, U.S. Dist. Ct., S. Dist. of Fla. at 6 (Oct. 9, 2012).

Another reason for the surge in ADA litigation are plaintiffs who claim that, because of their disabilities, they are unable to access products and/or services. A growing number of the claims are by the blind, who assert that they are unable to utilize various equipment or machines located on the premises such as touch-screen beverage dispensersor touch-screen point-of-sale (POS) devices. See Gomez v. Gold's Gym, Int'l, 2:15-cv-08123, U.S. Dist Ct., Cent. Dist. of Cal.

Similar allegations have been made about various companies' websites, although there is a difference of opinion among jurisdictions as to whether a website is a "place of public accommodation." Compare Cullen v. Netflix, Inc., No, 13-15092, (9th Cir. March 13, 2015) (unpublished) quoting Weyer v. Twentieth Century Fox Film Corp., 198 F.3d 1104, 1114 (9th Cir. 2000) (a "place of public accommodation" requires "some connection between the good or service complained of and an actual physical place.") with Nat'l Federation for the Blind, v. Scribd, 2015 WL 1263336 (D. Vt. March 19, 2015) (website is a place of public accommodation and, thus, must comply with the accessibility requirements of the ADA).

A reaction is building to Title III ADA lawsuits, suggesting a growing acknowledgement that reform is needed. For example, bills have been introduced in California (e.g., SB 251) that would provide a corrective action period for businesses, enabling them to avoid facing penalties if corrective measures are undertaken and verified.

Beverages

Using Growlers to Expand Your Business and Attract New Customers

On July 1, 2015, Florida became the last state to legalize the 64-ounce "growler" as a container for draught beer. Holland & Knight lobbied the bill for the industry. Although growlers are primarily associated throughout the country with breweries and brewpubs, an increasing number of restaurants, grocery stores and other retail vendors are using them to market themselves to millennial craft beer enthusiasts.

What are the rules and regulations behind growlers? While state laws vary, there are typically two regulatory aspects to consider: whether your retail license permits you to fill and sell growlers with draught beer and, if so, what requirements exist for labeling and sealing them. Many states allow a retailer with a license to sell draught beer and/or consume draught beer on premises to sell and fill growlers. Once it is filled with fresh draught beer, there is usually a requirement that the growler label identify the manufacturer, the brand of beer and the percentage of alcohol by volume, and that the growler have an unbroken seal or be incapable of immediate consumption.

Selling and filling growlers provides an excellent opportunity for vendors to expand product offerings to customers and market themselves as cutting-edge in one of the fastest growing segments of the alcoholic beverage industry.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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